Download Lesson 14 – How are Stock Prices Determined?

LESSON 14
HOW ARE STOCK PRICES
DETERMINED?
LEARNING, EARNING, AND INVESTING
FOR A
NEW GENERATION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY
SLIDE 14.1
LESSON 14 – HOW ARE STOCK PRICES DETERMINED?
Discovering the Law of Demand
Amount you pay
for one cup of
Stomping
Grounds Coffee
1
2
3
4
Total
$10
$5
$4
$3
$2
$1
$0 (free coupons)
LEARNING, EARNING, AND INVESTING
FOR A
NEW GENERATION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY
SLIDE 14.2
LESSON 14 – HOW ARE STOCK PRICES DETERMINED?
Discovering the Law of Supply
Amount you
would receive as
wages for one
hour of work
1
2
3
4
Total
$30
$25
$20
$15
$10
$0 (volunteer)
LEARNING, EARNING, AND INVESTING
FOR A
NEW GENERATION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY
SLIDE 14.3
LESSON 14 – HOW ARE STOCK PRICES DETERMINED?
The Laws of Demand and Supply
• Law of Demand: At lower prices, people choose to buy
more. At higher prices, people choose to buy less.
• Law of Supply: At higher prices, people choose to
produce more. At lower prices, people choose to
produce less.
LEARNING, EARNING, AND INVESTING
FOR A
NEW GENERATION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY
SLIDE 14.4
LESSON 14 – HOW ARE STOCK PRICES DETERMINED?
Classroom Tally Sheet
Price
Round 1
Round 2
Round 3
$50
45
40
35
30
25
20
15
10
$5
LEARNING, EARNING, AND INVESTING
FOR A
NEW GENERATION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY
SLIDE 14.5
LESSON 14 – HOW ARE STOCK PRICES DETERMINED?
Supply and Demand for
Mighty Wings, Inc. Shares
LEARNING, EARNING, AND INVESTING
FOR A
NEW GENERATION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY
SLIDE 14.6
LESSON 14 – HOW ARE STOCK PRICES DETERMINED?
Change in Demand for
Mighty Wings, Inc. Shares
LEARNING, EARNING, AND INVESTING
FOR A
NEW GENERATION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY
SLIDE 14.7
LESSON 14 – HOW ARE STOCK PRICES DETERMINED?
Change in Supply for
Mighty Wings, Inc. Shares
LEARNING, EARNING, AND INVESTING
FOR A
NEW GENERATION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY
SLIDE 14.8
LESSON 14 – HOW ARE STOCK PRICES DETERMINED?
The Role of Expectations
Demand in Stock Markets
People are more likely to buy stock in a given company if the have
positive expectations regarding the success of that company.
They might expect:
■ The share price to increase.
■ An improved dividend payment.
Supply in Stock Markets
• People are more likely to sell stock in a given company if they have
negative expectations regarding the success of that company.
They might expect:
■ The stock price to decrease in response to changes in the industry, world
events, or other uncertainties.
■ The dividend to decrease.
■ Better opportunities to purchase other stocks, bonds, or other types of
investments.
LEARNING, EARNING, AND INVESTING
FOR A
NEW GENERATION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY
SLIDE 14.9
LESSON 14 – HOW ARE STOCK PRICES DETERMINED?
Review of Supply and Demand
• The law of demand states (regarding stocks) that
buyers choose to purchase more shares at lower prices
and fewer shares at higher prices, all else constant.
• The law of supply states (regarding stocks) that sellers
choose to sell more shares at higher prices and fewer
shares at lower prices, all else constant.
• An equilibrium price exists when the quantity of
shares demanded at that price equals the quantity of
share supplied.
• Stock prices change as a result of changes in the
supply of and demand for shares of the stock in
question.
LEARNING, EARNING, AND INVESTING
FOR A
NEW GENERATION © COUNCIL FOR ECONOMIC EDUCATION, NEW YORK, NY